Contracting in software business : analysis of evolving contract processes and relationships

Abstract

<div lang="en" class="abs"><p class="abs_header">Abstract</p><p>The relationships between software producing companies, their customers and other parties involved have growing importance in the turbulent and fast developing business environment of today. The software industry itself is characterized by the Commercial-Off-The-Shelf (COTS), tailored, and Modified-Off-The-Shelf (MOTS) businesses modes. In this versatile context of cooperation, financing and acquisitions demand exact details of the ownership of the products, i.e. the Intellectual Property Rights of these products and services. Legal forms and contracting procedures are emerging as the critical issues for the development of the information technology industry.</p><p>This study addresses the problem of how software contracting has been approached and what concepts and models have been presented to understand it. Further, the question of the role of inter-organisational relationships (business-to-business) and intra-organisational process evolution in software contracting is discussed. The domains of interest and of relevance in this research are software development process, business process, legal process, and the contracting process itself, and the evolving interaction between these processes. The focus of this study is especially on contracting and on analysing the process of contracting, i.e. the dynamics, dependencies and elements of process related issues.</p><p>The empirical part of the study was completed by analysing twelve software producing companies — eight were Finnish firms established in Silicon Valley (USA) and the rest were local Finnish firms with international operations. Based on the empirical findings, a software-contracting model was elaborated to describe how the contracting processes form and evolve in the context of software business. The model gives more understanding of the evolving contract processes and relationships. Further, the research produced concepts of how to manage contracting processes in the software business.</p><p>Contributions of this study are, first, the well-defined model for contracting process in a software developing company. The elaborated model gives new insight into the elements, interrelationships and governance structures included in the contracting process and the relationship development between cooperating companies. Software companies can compare their contractual situation with the model. This enables them to develop their own processes further to respond to the present-day requirements. Secondly, the study specifies and introduces three different generic contracting networks for COTS, tailored, and MOTS business modes of software developing companies. It was established that these three business modes have similarities as well as differences in the application of software contracting processes. The COTS business relied firmly on multiform licensing practices, whereas the tailored business saw the framework contract as the main contractual tool and interestingly the MOTS business employed combinations of these two previous forms, i.e. both licensing and framework contracts.</p><p>This study evoked some interesting future research prospects. In order to create a more accurate overall view of the whole contracting process the research should be continued and take the interplay of both customer and supplier under closer scrutiny. Another important issue would be to examine the contracts used in these different business modes from a strict legal viewpoint and the possible transformation of the predominant legal practices.</p></div>